3 Barriers to Omnichannel Success

Dec 12, 2014 11:49 AM By Yan Krupnik

With the advancement of technology and the change in consumer shopping habits, the current wave in retail is riding swiftly towards omnichannel. This has caused a disruption in the retail industry, much like earlier introductions of the modern department store and POS system.

Disruptions reshape the landscape and redefine expectations, forcing retailers to either adapt or die out. Today’s retailers must create a seamless and integrated solution as quickly as possible, or risk sending customers straight to their competitors.

Approximately one-third of retailers have invested in some level of omnichannel capabilities, but those that haven’t are setting themselves up for failure. Cross-channel features considered a luxury yesterday are a necessity today. So, what’s preventing retailers from omnichannel integration?

Miscalculating demand

In today’s omnichannel environment, calculating demand is more challenging than ever. The huge growth in online shopping (and expensive delivery costs) has forced retailers to rethink fulfillment strategy. Retailers are trying to deliver items to online shoppers as quickly as possible, and to do this efficiently, they are beginning to turn stores into mini-fulfillment centers. Often, it’s faster and less expensive to fulfill an order from a local store, rather than from the distribution center located across the county. But fulfilling orders in store that come from both virtual and physical channels makes calculating and supplying demand significantly more complex.

For example, if a retailer receives four orders for laptops in Miami,but the nearest distribution center is in Texas, it makes a lot more sense to ship right from a local store down the street, or make it available for in-store pick up. This will increase the customer service level while reducing logistics costs. However, if the Miami neighbor store only has four laptops available, that store will now be out of stock when someone walks in to purchase that laptop. At the same time, calculating inventory levels for in-store and online purchases separately will only increase forecast errors and inventory costs. This is why it’s so crucial to calculate real demand across all channels down to the store/SKU level.

  Failing to balance inventory and assortment across all channels

Omnichannel retailing requires the right products to be at the right place at the right time. Failing to do this puts the entire omnichannel system at risk of collapsing.

The balancing act is especially challenging with holiday and seasonal inventory, which becomes outdated in the blink of an eye. The fluctuating demand for this inventory ­– along with the fact that consumer demand in terms of products, sizes, and styles always vary by location – makes it extremely difficult to forecast sales using historical data.

Out-of-stocks translate to lost revenue and may push customers toward the competitor. Excessive surplus results in painful markdowns. Worse, by the time businesses realize the imbalance, it’s too late to avoid the associated costs. The sale and the consumer are out the door and bargain basement pricing is inevitable.

It is possible to get ahead of the problem. Predictive analytics is an increasingly popular solution for retailers struggling to manage inventory. Real-time predictive technology systems differ from past metrics in that they anticipate the necessary transfer of an item before you incur inventory costs and begin to lose sales. The system automatically takes into consideration all the factors associated with the switch, including logistics, store capacity, geo-demographic diversity, assortment rules and the sizes, styles and colors most likely to sell at individual locations.

Before you start considering markdowns for inventory collecting dust on the shelf, determine whether inter-store inventory balancing would allow you to move inventory from a store where it is in abundance to a store that is out-of-stock with the product in demand.

Lacking an integrated approach to omnichannel retailing

When it comes to retail, whether it is fashion, automotive, jewelry, electronics, or liquor and wine, the supply chain process is fairly similar. It normally involves planning, purchasing, initial allocation, replenishment, assortment and merchandising decisions, price optimization, handling promotional events and other steps. The influencing factors are also common: historic sales and consumer demand, trends, seasonal fluctuations, price elasticity of demand, lead times variability, and so on. Yes, each retailer will have a unique process with its own nuances and complexities. Still, the major part of the influencing factors is measurable and predictable. What’s most important to realize is that all these processes and functions of a retail organization are highly interdependent, and if a solution doesn’t take all of this into account, it will not be supporting an omnichannel environment. A good retail predictive analytics engine is built on a common analytic platform capable of truly integrating and accounting for all these factors.

In a true omnichannel environment, the entire retail organization works in concert from merchandise planning to event management and everything in between. This significantly reduces inventory costs and increases customer service level at each channel to maximize gross margin.